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BLOOMBERG
A selloff in Chinese assets deepened on Wednesday, with a key equity gauge set to erase all gains seen since last month’s Politburo meeting and the yuan falling towards a 16-year low. The MSCI China Index dropped as much as 1.3% amid mounting concerns over economic growth, set to close below where it was before policy vows at the July political gathering triggered a rally.
The Hang Seng China Enterprises Index is within a whisker of wiping out its gains, while the Hang Seng Index slid 1.4% to inch closer to a technical bear market.
Pressure is building across China’s financial markets given a slew of disappointing economic data, renewed concerns about the property sector and an unfolding crisis in the nation’s shadow banking system. All of this is creating deflationary pressure that threatens to undermine corporate profits. Investors are calling for more aggressive easing by Beijing as the incremental policies have so far failed to revive confidence.
“China’s current recession-like conditions, characterised by deflationary pressures, have significant implications for both its domestic economy and its global interaction,” said Manish Bhargava, a fund manager at Straits Investment Holdings in Singapore.
“Investors might become wary of allocating funds to China due to concerns about the economic downturn and reduced potential returns.”
Market reaction to a spate of stimulus steps has been muted, underscoring the extent of investor pessimism. The selloff persisted following a Wednesday report that authorities have asked some investment funds this week to avoid being net sellers of equities.
A surprise interest rate cut by the People’s Bank of China and a potential stamp duty cut on stock trades have also failed to move the needle.
The price actions today were “another classic day” for China stocks despite the supportive measures, said Willer Chen, senior analyst at Forsyth Barr Asia Ltd. “People are losing patience. With just piecemeal policies, they are getting more and more concerned about the economy.” Overseas investors again offloaded Chinese stocks via the links with Hong Kong, extending the net selling streak to the eighth session.